Save Article

Maynard Webb: It’s Dangerous to Raise More than You Need

May 29, 2015 12:31 pm ET

MAYNARD WEBB: I encourage founders to ignore the hype and the ego stroking that comes with a big valuation and instead chose to be humble. There’s no need to raise more than you need — and it’s dangerous to do so. If you raise ahead of your skis and your business can’t deliver, the fall is very painful. This is the scenario in which CEOs are fired. This is the scenario all founders must avoid. Therefore, it’s crucial to raise the right amount. I like to see enough for 18-24 months of run rate (a year is the minimum run rate, and two years is the max). You need enough funding to have degrees of freedom so you don’t run out of money before your next round. Obviously, you never want to leave yourself out of cash so that you are forced into a fire sale or exposing a soft underbelly where someone can take advantage of your vulnerabilities. But don’t raise so much that you do stupid things. …